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What do your T&C’s say about payment?

I wonder how many adjudicators have checked their T&C’s since the judgment in Christopher Linnett Ltd v Harding (t/a M J Harding Contractors) came out. I know we did, just to be sure that it is clear who any appointment is with, where the money should go and what rights we have if we don’t get paid (including how interest is calculated and what we can do about our costs). 

Christopher Linnett Ltd v Harding (t/a M J Harding Contractors)

This is a dispute all about the adjudicator’s fees or, to be more accurate, the interest that accrued on those fees while they were outstanding (for a period of 104 days).

In March 2016, Mr Linnett was appointed after being nominated by RICS following a referral to adjudication by the employers (Mr Paice and Ms Springall). It was the fifth adjudication between the parties. As was his usual practice, Mr Linnett sent the parties a letter and a copy of his “Adjudication Policy and Procedure notes”, his “Standard Terms of Engagement” and a “Questionnaire”. One of the questions in the Questionnaire asked whether the “Scale of Charges and Terms of Engagement” were accepted. The employers replied yes to this, but Mr Harding did not expressly accept the terms. Instead, his solicitor wrote and reserved Mr Harding’s position “as regards participation in the adjudication [and] the jurisdiction of the adjudicator”.

The adjudication proceeded to a decision on 27 April 2016, with Mr Linnett awarding the employers some £296,000. The adjudicator’s fees and expenses were split equally between the parties to reflect the fact that the employers had not succeeded on every point. Both parties were subsequently invoiced £9,768 plus VAT. Enforcement proceedings followed (as they so often do), which meant that Mr Linnett did not receive payment of his fees until 26 August 2016.

Claiming the interest

The judgment doesn’t explain why Mr Linnett decided to issue proceedings for the interest on his outstanding fees or why he only claimed against Mr Harding. One presumes that it was, in part at least, a point of principle since the sum he was ultimately awarded was a little bit shy of £300. That is a tiny sum to be dealt with in the TCC, but it was transferred there from the Kingston County Court by Fraser J because of the nature of the issues that arise.

…and for sure, any adjudicator will find those issues very interesting indeed!

Was Mr Harding a party to an adjudicator’s agreement?

I’m not surprised that the court held that Mr Harding was a party to an adjudicator’s agreement. After all, he had fully participated in the adjudication, nothwithstanding his reservations as to jurisdiction. Thus, as the court concluded, he had “requested the adjudicator to adjudicate on the dispute”.

The court was able to refer to previous case law to confirm an adjudicator’s agreement was concluded by conduct, Linnett v Halliwells LLP (which involved the same Mr Linnett) and Fenice Investments Inc v Jerram Falkus Construction Ltd. (I wrote about Linnett at the time, and Jonathan considered Fenice.)

Who was the adjudication agreement with?

In my view, this is one of the more interesting aspects of the judgment.

The issue was relevant because the proceedings to recover interest were initially started by Christopher Linnett Ltd and Christopher Linnett was only added as a second claimant after an application was made during closing submissions “to meet the possibility that the Court might uphold the principal defence”, that is, that there was no contract with Christopher Linnett Ltd.

The amendment was allowed because, in essence, it made no difference, and it was the proportionate way to deal with the issue. The court acknowledged that this was “one of those rare cases” when it was appropriate to allow such an amendment so late in the day.

So, who was the agreement with?

The judgment sets out examples of when Mr Linnett was writing in his capacity as an individual (demonstrated by his use of “I”), and when he was not. Unsurprisingly (on the facts) the court held that the agreement was with Mr Linnett as an individual.

Pausing there, I think adjudicators should take note of what the court said:

  • The role of an adjudicator can only be performed by an individual. It is a contract for:

“… personal professional services and must be undertaken by a person.”

  • An individual can enter into an adjudicator’s agreement with one or both of the parties on terms that payment will be made to a firm or limited company, but the adjudicator’s agreement will be with the individual.
  • A firm or limited company can enter into an adjudicator’s agreement with one or both of the parties whereby it agrees to provide an individual to fulfil the role of adjudicator on its own terms and conditions. Here, the adjudicator’s agreement is with the firm or limited company. (For an example of this in practice, see Stork Technical Services (RGB) Ltd v Marion Howitson Ross, which I discussed at the time.)
  • It will be a question of fact who the adjudicator’s agreement is with but the starting point is that the agreement is with the individual and clear words will be needed to show the contrary.

I guess the moral is, if you are unsure and you want to sue one or both parties for your fees, bring the claim in your own name and that of the company too! Going forwards, make sure your T&C’s are clear about who payment should be made to and who the adjudicator’s agreement is actually with.

What were the terms of the adjudicator’s agreement?

The adjudicator’s agreement was formed by conduct, so the question was whether Mr Harding had accepted Mr Linnett’s terms.

The court held that he had, since he knew that Mr Linnett was only offering his services on those terms and he did nothing to object to them. Although silence of itself cannot give rise to an agreement, here Mr Harding’s silence was relevant to whether the agreement was concluded by conduct.

What about the Consumer Regulations?

Mr Harding did not succeed is his argument that he was a “consumer” within the meaning of the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013. This meant he had no right to cancel the agreement (which he had purported to do).

The court reached this conclusion on the basis that Mr Harding was not acting as an individual, he entered into the building contract as part of his business, and so was a “trader”. Even if he was an individual, he did not enter into the building contract in his “private, personal capacity”.

And the Late Payment Act?

The adjudicator’s terms expressly referred to the Late Payment of Commercial Debts (Interest) Act 1998 (Late Payment Act) (in clause 9). However, this contractual provision was not enough on its own to entitle the adjudicator to recover interest at 8% over base. It was necessary for the statute to be engaged. It seems this was because the adjudicator’s terms used the phrase “in accordance with”. As the court noted:

“It is a question of construction whether this means that the interest which shall be added will be the interest which is due subject to the proper application of the LPA or the interest which would be due in accordance with the LPA whether or not it applies.”

As the court preferred a construction that meant the Late Payment Act must actually apply (rather than be rendered applicable as a matter of the parties’ agreement), it had to confirm that the adjudicator and Mr Harding were both contracting in a business capacity, which it did. This meant there was a qualifying debt under section 3.

Again, another interesting point. I wonder how many T&C’s use the phrase “in accordance with”. In light of the court’s analysis, as I read this, if that language is used in an agreement where one of the parties is not acting in the course of a business, it looks likely that the adjudicator will not be entitled to interest at 8% over base rate, at least not under the Late Payment Act.

What about costs?

Much has been written about the Late Payment Act and what, if any, costs a party is entitled to recover as its “reasonable costs… in recovering the debt”, when the fixed sum is insufficient (here that was £100). However, this is usually in the context of a party trying to recover its adjudication costs.

Here, Mr Linnett’s terms avoided this problem by expressly referring to the Late Payment of Commercial Debts Regulations 2013 (which gave us the new section 5A(2A)). This meant he was entitled to a reasonable sum for this (which equated to time spent at his hourly rate).

However, this is not a charter for adjudicators to claim debt recovery costs. They have to include this provision, they have to demonstrate their hourly rate is reasonable and, more importantly, the time “must be reasonably spent in the activity of recovering overdue sums”.

What does this all mean?

For some, it is time for a spot of redrafting.

MCMS Ltd Matt Molloy

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